OpenText Reports Third Quarter Fiscal Year 2015 Financial Results

28 Apr, 2015, 16:01 ET from Open Text Corporation

- Recurring revenue was $383.6 million, up 4%; in constant currency*, up 10%

- Cloud services revenue was $143.8 million, up 12%; in constant currency, up 17%

- Record operating cash flow of $143.1 million and raises quarterly dividend to $0.20

- Total revenue was $447.6 million, up 1%; in constant currency, up 8%

WATERLOO, Ontario, April 28, 2015 /PRNewswire/ -- Open Text Corporation (NASDAQ: OTEX) (TSX: OTC) announced today its financial results for the third quarter ended March 31, 2015.

Financial Highlights for Q3 FY15 with Year Over Year Comparisons (1)

Summary of Quarterly Results

Q3 FY15

Q3 FY14

$ Change

% Change

Revenues: (in millions)

Cloud services

$143.8

$128.4

$15.4

12.0

%

Customer support

184.3

180.3

4.0

2.2

%

Professional service and other

55.5

61.0

(5.5)

(9.0)

%

Total Recurring revenues

$383.6

$369.7

$13.9

3.8

%

License

64.0

73.1

(9.1)

(12.4)

%

Total revenues

$447.6

$442.8

$4.8

1.1

%

Non-GAAP-based operating margin(2)

25.7

%

29.1

%

n/a

(340)

bps

GAAP-based operating margin

11.8

%

15.1

%

n/a

(330)

bps

Non-GAAP-based EPS, diluted (2)

$0.66

$0.84

($0.18)

(21.4)

%

GAAP-based EPS, diluted

$0.22

$0.38

($0.16)

(42.1)

%

Operating cash flows (in millions)

$143.1

$141.4

$1.7

1.2

%

 

Summary of Quarterly Results - Constant Currency

Q3 FY15 re-presented on a constant currency basis

Q3 FY14

$ Change

% Change

FX impact - higher (lower)

Revenues: (in millions)

Cloud services

$149.9

$128.4

$21.5

16.7

%

$

(6.1)

Customer support

198.2

180.3

17.9

9.9

%

(13.9)

Professional service and other

60.1

61.0

(0.9)

(1.5)

%

(4.6)

Total Recurring revenues

$408.2

$369.7

$38.5

10.4

%

$

(24.6)

License

$70.3

73.1

(2.8)

(3.8)%

(6.3)

Total revenues

$478.5

$442.8

$35.7

8.1

%

$

(30.9)

Non-GAAP-based operating margin (2)

26.3

%

29.1

%

n/a

(280)

bps

Non-GAAP-based EPS, diluted (2)

$0.73

$0.84

($0.11)

(13.1)

%

($0.07)

"In Q315, our cloud revenue grew 12%, up 17% in constant currency and we closed 7 iX deals over $1 million, the benefit of which we will see in our future ongoing cloud revenues," said OpenText CEO Mark J. Barrenechea. "Our products and services are resonating with enterprise customers and OpenText is well positioned to lead the digital transformation in the cloud."

Barrenechea further added, "As for our quarterly financial results, we did not meet our full financial objectives. As for revenue, we were affected by foreign exchange and customers transitioning to our cloud; as for profit, we were affected by foreign exchange and unique items in the quarter, such as acquisitions, litigation costs and others, the benefits of which should be seen in future quarters. With that said, I am pleased that our recurring revenues grew by 4%, up 10% in constant currency, and we had record operating cash flows of $143.1 million in the quarter."

"Foreign currency volatility continued to have a significant impact on our results in the quarter and on a year-to-date basis," said John Doolittle, OpenText CFO. "Although we are fighting currency headwinds, we are pleased with our growth in recurring revenues and our operating cash flow performance, attributed to our strong working capital management this quarter. Based on the operating cash performance, our strong liquidity position and our focus on delivering value to shareholders, we have increased our quarterly dividend to $0.20."

*Constant currency for this purpose is defined as the current period reported revenues/expenses/earnings represented at the prior comparative period's foreign exchange rate.

Business Highlights

  • OpenText buys Actuate Corporation and Informative Graphics Corporation
  • 10 customer transactions over $1 million, 7 cloud contract signings in the OpenText Cloud and 3 on-premises
  • Financial, services and public sector industries saw the most demand
  • Cloud customer successes in the quarter include Hasbro, SleepMed, Roche Diagnostics, KPN and Pillar Administration
  • On-premises customer successes in the quarter include BLS AG, Dover Corp, FACC Operations GmbH, Annenberg Foundation Center, State of Maine Office of Information Technology, Tangerine Bank, Serco and Region of Peel
  • OpenText completes EIM Suite enhancements (SP1) to deliver customer success in the digital-first world
  • OpenText adds analytics for B2B transactions to provide greater supply chain insight
  • OpenText offers a new communications hub for omni-channel interactions in the cloud
  • OpenText announces new contract management system to automate contract processing
  • OpenText announces new compliance and performance capabilities to ensure fast, secure transfer of files
  • OpenText wins patent infringement trial against Box and Carahsoft

Dividend Program Highlights

Cash Dividend - Raised by 16%

As part of our quarterly, non cumulative cash dividend program the Board declared on April 27, 2015 a sixteen percent increase in its quarterly cash dividend from $0.1725 to $0.20 per Common Share. The record date for this dividend is May 29, 2015 and the payment date is June 19, 2015. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination and discretion of our Board of Directors.

Summary of Quarterly Results

Q3 FY15

Q2 FY15

Q3 FY14

% Change

(Q3 FY15 vs Q2 FY15)

% Change

(Q3 FY15 vs Q3 FY14)

Revenue (million)

$447.6

$467.8

$442.8

(4.3)

%

1.1

%

GAAP-based gross margin

65.7

%

68.1

%

67.3

%

(240)

bps

(160)

bps

GAAP-based operating margin

11.8

%

23.6

%

15.1

%

(1,180)

bps

(330)

bps

GAAP-based EPS, diluted

$0.22

$0.60

$0.38

(63.3)

%

(42.1)

%

Non-GAAP-based gross margin (2)

70.8

%

72.2

%

71.3

%

(140)

bps

(50)

bps

Non-GAAP-based operating margin (2)

25.7

%

32.8

%

29.1

%

(710)

bps

(340)

bps

Non-GAAP-based EPS, diluted (2)

$0.66

$0.97

$0.84

(32.0)

%

(21.4)

%

 

Summary of Year to Date Results

Q3 FY15 YTD

Q3 FY14 YTD

% Change

Revenue (million)

$1,369.2

$1,130.7

21.1

%

GAAP-based gross margin

67.1

%

68.3

%

(120)

bps

GAAP-based operating margin

19.4

%

17.1

%

230

bps

GAAP-based EPS, diluted

$1.35

$1.08

25.0

%

Non-GAAP-based gross margin (2)

71.5

%

73.0

%

(150)

bps

Non-GAAP-based operating margin (2)

31.0

%

30.1

%

90

bps

Non-GAAP-based EPS, diluted (2)

$2.59

$2.32

11.6

%

Conference Call Information

The public is invited to listen to the earnings conference call today at 5:00 p.m. ET (2:00 p.m. PT) by dialing 1-800-319-4610 (toll-free) or +1-604-638-5340 (international). Please dial-in 15 minutes ahead of time to ensure proper connection. Alternatively, a live webcast of the earnings conference call will be available on the Investor Relations section of the Company's website at http://investors.opentext.com/events.cfm.

A replay of the call will be available beginning April 28, 2015 at 7:00 p.m. ET through 11:59 p.m. on May 12, 2015 and can be accessed by dialing 1-855-669-9658 (toll-free) or +1-604-674-8052 (international) and using passcode 1469 followed by the number sign.

Please see below note (2) for a reconciliation of non-U.S. GAAP-based financial measures used in this press release, to U.S. GAAP-based financial measures.

About OpenText

OpenText is the largest independent software provider of Enterprise Information Management (EIM). For more information please visit www.opentext.com.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this press release, including statements about the focus of Open Text Corporation ("OpenText" or "the Company") in Fiscal 2015 on growth in earnings and cash flows, creating value through investments in broader Enterprise Information Management (EIM) capabilities, distribution, the Company's presence in the cloud and in growth markets, its financial condition, results of operations and earnings, declaration of quarterly dividends, and other matters, may contain words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates", "may", "could", "would", "might", "will" and variations of these words or similar expressions are considered forward-looking statements or information under applicable securities laws. In addition, any information or statements that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking, and based on our current expectations, forecasts and projections about the operating environment, economies and markets in which we operate. Forward-looking statements reflect our current estimates, beliefs and assumptions, which are based on management's perception of historic trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances, such as certain assumptions about the economy, as well as market, financial and operational assumptions. Management's estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and, as such, are subject to change. We can give no assurance that such estimates, beliefs and assumptions will prove to be correct. Such forward-looking statements involve known and unknown risks, uncertainties and other factors and assumptions that may cause the actual results, performance or achievements to differ materially. Such factors include, but are not limited to: (i) the future performance, financial and otherwise, of OpenText; (ii) the ability of OpenText to bring new products and services to market and to increase sales; (iii) the strength of the Company's product development pipeline; (iv) the Company's growth and profitability prospects; (v) the estimated size and growth prospects of the EIM market; (vi) the Company's competitive position in the EIM market and its ability to take advantage of future opportunities in this market; (vii) the benefits of the Company's products and services to be realized by customers; (viii) the demand for the Company's products and services and the extent of deployment of the Company's products and services in the EIM marketplace; and (ix) the Company's financial condition and capital requirements. The risks and uncertainties that may affect forward-looking statements include, but are not limited to: (i) integration of acquisitions and related restructuring efforts, including the quantum of restructuring charges and the timing thereof; (ii) the possibility that the Company may be unable to meet its future reporting requirements under the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder; (iii) the risks associated with bringing new products and services to market; (iv) fluctuations in currency exchange rates; (v) delays in the purchasing decisions of the Company's customers; (vi) the competition the Company faces in its industry and/or marketplace; (vii) the final determination of litigation, tax audits and other legal proceedings; (viii) the possibility of technical, logistical or planning issues in connection with the deployment of the Company's products or services; (ix) the continuous commitment of the Company's customers; and (x) demand for the Company's products. For additional information with respect to risks and other factors which could occur, see the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other securities filings with the Securities and Exchange Commission (SEC) and other securities regulators. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

For more information, please contact:

United States:

Greg Secord Vice President, Investor Relations Open Text Corporation San Francisco: 415-963-0825 gsecord@opentext.com

Canada:

Sonya Mehan Senior Manager, Investor Relations Open Text Corporation Waterloo: 519-888-7111 ext. 2446 smehan@opentext.com

Copyright ©2015 Open Text Corporation. OpenText is a trademark or registered trademark of Open Text SA and/or Open Text ULC. The list of trademarks is not exhaustive of other trademarks, registered trademarks, product names, company names, brands and service names mentioned herein are property of Open Text SA or other respective owners. All rights reserved. For more information, visit: http://www.opentext.com/2/global/site-copyright.html_SKU.

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars, except share data)

March 31, 2015

June 30, 2014

(unaudited)

ASSETS

Cash and cash equivalents

$

613,177

$

427,890

Short-term investments

19,029

Accounts receivable trade, net of allowance for doubtful accounts of $6,818 as of March 31, 2015 and $4,727 as of June 30, 2014

251,826

292,929

Income taxes recoverable

20,543

24,648

Prepaid expenses and other current assets

53,563

42,053

Deferred tax assets

35,936

28,215

Total current assets

994,074

815,735

Property and equipment

155,129

142,261

Goodwill

2,155,243

1,963,557

Acquired intangible assets

730,673

725,318

Deferred tax assets

149,570

156,712

Other assets

84,223

52,041

Deferred charges

41,043

52,376

Long-term income taxes recoverable

8,587

10,638

Total assets

$

4,318,542

$

3,918,638

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$

212,397

$

231,954

Current portion of long-term debt

15,802

62,582

Deferred revenues

364,728

332,664

Income taxes payable

4,529

31,630

Deferred tax liabilities

2,220

1,053

Total current liabilities

599,676

659,883

Long-term liabilities:

Accrued liabilities

30,802

41,999

Deferred credits

14,089

17,529

Pension liability

64,000

60,300

Long-term debt

1,582,000

1,256,750

Deferred revenues

20,042

17,248

Long-term income taxes payable

163,232

162,131

Deferred tax liabilities

65,659

60,631

Total long-term liabilities

1,939,824

1,616,588

Shareholders' equity:

Share capital

122,207,636 and 121,758,432 Common Shares issued and outstanding at March 31, 2015 and June 30, 2014, respectively; Authorized Common Shares: unlimited

806,532

792,834

Additional paid-in capital

120,246

112,398

Accumulated other comprehensive income

43,720

39,449

Retained earnings

818,666

716,317

Treasury stock, at cost (407,725 shares at March 31, 2015 and 763,278 at June 30, 2014, respectively)

(10,680)

(19,132)

Total OpenText shareholders' equity

1,778,484

1,641,866

Non-controlling interests

558

301

Total shareholders' equity

1,779,042

1,642,167

Total liabilities and shareholders' equity

$

4,318,542

$

3,918,638

 

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands of U.S. dollars, except share and per share data)

(unaudited)

Three Months Ended March 31,

Nine Months Ended March 31,

2015

2014

2015

2014

Revenues:

License

$

63,958

$

73,083

$

198,397

$

209,553

Cloud services

143,822

128,400

445,097

212,178

Customer support

184,335

180,290

547,707

523,155

Professional service and other

55,462

60,981

178,008

185,835

Total revenues

447,577

442,754

1,369,209

1,130,721

Cost of revenues:

License

3,014

3,527

9,514

9,867

Cloud services

59,989

49,464

174,959

79,692

Customer support

24,092

25,206

71,252

71,785

Professional service and other

44,330

49,218

136,332

145,898

Amortization of acquired technology-based intangible assets

22,136

17,147

58,548

51,712

Total cost of revenues

153,561

144,562

450,605

358,954

Gross profit

294,016

298,192

918,604

771,767

Operating expenses:

Research and development

53,222

47,199

144,134

129,332

Sales and marketing

95,787

93,700

265,896

244,403

General and administrative

45,722

39,336

121,327

101,037

Depreciation

12,809

10,527

37,516

23,883

Amortization of acquired customer-based intangible assets

28,250

24,679

79,498

54,388

Special charges

5,622

15,902

4,032

25,901

Total operating expenses

241,412

231,343

652,403

578,944

Income from operations

52,604

66,849

266,201

192,823

Other income (expense), net

(9,550)

1,652

(28,737)

2,838

Interest and other related expense, net

(16,872)

(9,734)

(36,426)

(17,159)

Income before income taxes

26,182

58,767

201,038

178,502

Provision for (recovery of) income taxes

(309)

12,971

35,401

48,576

Net income for the period

$

26,491

$

45,796

$

165,637

$

129,926

Net (income) loss attributable to non-controlling interests

119

88

(114)

88

Net income attributable to OpenText

$

26,610

$

45,884

$

165,523

$

130,014

Earnings per share—basic attributable to OpenText

$

0.22

$

0.38

$

1.36

$

1.09

Earnings per share—diluted attributable to OpenText

$

0.22

$

0.38

$

1.35

$

1.08

Weighted average number of Common Shares outstanding—basic

122,158

120,873

122,042

119,048

Weighted average number of Common Shares outstanding—diluted

123,054

122,100

122,980

120,031

Dividends declared per Common Share

$

0.1725

$

0.1500

$

0.5175

$

0.4500

 

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands of U.S. dollars)

(unaudited)

Three Months Ended March 31,

Nine Months Ended March 31,

2015

2014

2015

2014

Net income for the period

$

26,491

$

45,796

$

165,637

$

129,926

Other comprehensive income—net of tax:

Net foreign currency translation adjustments

9,280

(1,087)

17,626

(733)

Unrealized gain (loss) on cash flow hedges:

Unrealized gain (loss)

(2,801)

(1,604)

(7,017)

(1,517)

Loss reclassified into net income

2,488

1,237

3,485

2,410

Actuarial gain (loss) relating to defined benefit pension plans:

Actuarial gain (loss)

(3,052)

(1,808)

(10,107)

(781)

Amortization of actuarial loss into net income

75

74

280

220

Unrealized gain on short-term investments

4

4

Unrealized gain on marketable securities (Actuate)

1,906

Release of unrealized gain on marketable securities (Actuate)

(1,906)

(1,906)

Total other comprehensive income (loss), net, for the period

4,088

(3,188)

4,271

(401)

Total comprehensive income

30,579

42,608

169,908

129,525

Comprehensive income attributable to non-controlling interests

119

88

(114)

88

Total comprehensive income attributable to OpenText

$

30,698

$

42,696

$

169,794

$

129,613

 

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(unaudited)

Three Months Ended March 31,

Nine Months Ended March 31,

2015

2014

2015

2014

Cash flows from operating activities:

Net income for the period

$

26,491

$

45,796

$

165,637

$

129,926

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of intangible assets

63,195

52,353

175,562

129,983

Share-based compensation expense

6,562

4,418

15,940

15,707

Excess tax benefits on share-based compensation expense

16

(594)

(1,611)

(1,675)

Pension expense

1,180

1,174

3,602

1,964

Amortization of debt issuance costs

1,135

1,016

3,410

2,060

Amortization of deferred charges and credits

2,630

2,706

7,893

8,640

Loss on sale and write down of property and equipment

118

118

15

Deferred taxes

(5,256)

(1,005)

(4,037)

(4,203)

Release of unrealized gain on marketable securities to income

(3,098)

(3,098)

Write off of unamortized debt issuance costs

2,919

2,919

Changes in operating assets and liabilities:

Accounts receivable

36,311

9,953

76,560

19,129

Prepaid expenses and other current assets

(3,304)

(14,464)

(4,001)

(18,625)

Income taxes

(10,245)

3,169

1,354

5,578

Deferred charges and credits

1,382

9,870

Accounts payable and accrued liabilities

(16,421)

(22,032)

(53,747)

(32,878)

Deferred revenue

39,450

60,156

6,705

20,022

Other assets

1,428

(2,614)

(1,992)

(3,300)

Net cash provided by operating activities

143,111

141,414

391,214

282,213

Cash flows from investing activities:

Additions of property and equipment

(12,325)

(8,215)

(60,586)

(28,443)

Proceeds from maturity of short-term investments

7,092

7,092

Purchase of patents

(192)

Purchase of Actuate Corporation, net of cash acquired

(291,768)

(291,768)

Purchase of Informative Graphics Corporation, net of cash acquired

(35,180)

(35,180)

Purchase of GXS Group, Inc., net of cash acquired

(1,077,671)

(1,077,671)

Purchase of Cordys Holding B.V., net of cash acquired

(30,588)

Purchase of a division of Spicer Corporation

(222)

Purchase consideration for prior period acquisitions

(147)

(222)

(590)

(665)

Other investing activities

(482)

(1,573)

(8,915)

(2,547)

Net cash used in investing activities

(332,810)

(1,087,681)

(390,169)

(1,140,106)

Cash flows from financing activities:

Excess tax benefits on share-based compensation expense

(16)

594

1,611

1,675

Proceeds from issuance of Common Shares

3,689

14,289

12,827

19,718

Equity issuance costs

(144)

(144)

Purchase of Treasury Stock

(1,251)

(1,275)

(1,251)

(1,275)

Proceeds from long-term debt

800,000

800,000

800,000

800,000

Repayment of long-term debt

(493,655)

(13,412)

(520,485)

(32,499)

Debt issuance costs

(16,673)

(15,759)

(18,076)

(16,032)

Payments of dividends to shareholders

(21,075)

(18,224)

(63,174)

(53,692)

Net cash used in financing activities

271,019

766,069

211,452

717,751

Foreign exchange gain (loss) on cash held in foreign currencies

(10,953)

915

(27,210)

5,768

Increase (decrease) in cash and cash equivalents during the period

70,367

(179,283)

185,287

(134,374)

Cash and cash equivalents at beginning of the period

542,810

515,354

427,890

470,445

Cash and cash equivalents at end of the period

$

613,177

$

336,071

$

613,177

$

336,071

 

Notes

(1)

All dollar amounts in this press release are in U.S. Dollars unless otherwise indicated.

(2)

Use of Non-GAAP Financial Measures: In addition to reporting financial results in accordance with U.S. GAAP, the Company provides certain financial measures that are not in accordance with U.S. GAAP (non-GAAP).These non-GAAP financial measures have certain limitations in that they do not have a standardized meaning and thus the Company's definition may be different from similar non-GAAP financial measures used by other companies and/or analysts and may differ from period to period. Thus it may be more difficult to compare the Company's financial performance to that of other companies. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded in the calculation of these non-GAAP financial measures both in its reconciliation to the U.S. GAAP financial measures and its consolidated financial statements, all of which should be considered when evaluating the Company's results.

The Company uses these non-GAAP financial measures to supplement the information provided in its consolidated financial statements, which are presented in accordance with U.S. GAAP. The presentation of non-GAAP financial measures are not meant to be a substitute for financial measures presented in accordance with U.S. GAAP, but rather should be evaluated in conjunction with and as a supplement to such U.S. GAAP measures. OpenText strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure. The Company therefore believes that despite these limitations, it is appropriate to supplement the disclosure of the U.S. GAAP measures with certain non-GAAP measures defined below.

Non-GAAP-based net income and non-GAAP-based EPS are calculated as net income or net income per share on a diluted basis, excluding, the amortization of acquired intangible assets, other income (expense), share-based compensation, and special charges, all net of tax. Non-GAAP-based gross profit is the arithmetical sum of GAAP-based gross profit and the amortization of acquired technology-based intangible assets. Non-GAAP-based gross margin is calculated as non-GAAP-based gross profit expressed as a percentage of revenue. Non-GAAP-based income from operations is calculated as income from operations, excluding, the amortization of acquired intangible assets, special charges (recoveries), and share-based compensation. Non-GAAP-based operating margin is calculated as non-GAAP-based income from operations expressed as a percentage of revenue.

The Company's management believes that the presentation, of the above defined non-GAAP financial measures, provides useful information to investors because they portray the financial results of the Company before the impact of certain non-operational charges. The use of the term "non-operational charge" is defined for this purpose as an expense that does not impact the ongoing operating decisions taken by the Company's management and is based upon the way the Company's management evaluates the performance of the Company's business for use in the Company's internal reports. In the course of such evaluation and for the purpose of making operating decisions, the Company's management excludes certain items from its analysis, including amortization of acquired intangible assets, special charges (recoveries), share-based compensation, other income (expense), and the taxation impact of these items. These items are excluded based upon the manner in which management evaluates the business of the Company and are not excluded in the sense that they may be used under U.S. GAAP.

The Company believes the provision of supplemental non-GAAP measures allow investors to evaluate the operational and financial performance of the Company's core business using the same evaluation measures that management uses, and is therefore a useful indication of OpenText's performance or expected performance of future operations and facilitates period-to-period comparison of operating performance (although prior performance is not necessarily indicative of future performance). As a result, the Company considers it appropriate and reasonable to provide, in addition to U.S. GAAP measures, supplementary non-GAAP financial measures that exclude certain items from the presentation of its financial results in this press release.

The following charts provide (unaudited) reconciliations of U.S. GAAP-based financial measures to non-U.S. GAAP-based financial measures for the following periods presented:

 

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended March 31, 2015.

(In thousands except for per share amounts)

Three Months Ended March 31, 2015

GAAP-based

Measures

GAAP-based Measures

% of Revenue

Adjustments

Note

Non-GAAP-based

Measures

Non-GAAP-based Measures

% of Revenue

Cost of revenues

Cloud services

$

59,989

$

(182)

(1)

$

59,807

Customer support

24,092

(224)

(1)

23,868

Professional service and other

44,330

(316)

(1)

44,014

Amortization of acquired technology-based intangible assets

22,136

(22,136)

(2)

GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%)

294,016

65.7

%

22,858

(3)

316,874

70.8

%

Operating expenses

Research and development

53,222

(654)

(1)

52,568

Sales and marketing

95,787

(1,919)

(1)

93,868

General and administrative

45,722

(3,267)

(1)

42,455

Amortization of acquired customer-based intangible assets

28,250

(28,250)

(2)

Special charges (recoveries)

5,622

(5,622)

(4)

GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)

52,604

11.8

%

62,570

(5)

115,174

25.7

%

Other income (expense), net

(9,550)

9,550

(6)

Provision for (recovery of) income taxes

(309)

18,122

(7)

17,813

GAAP-based net income / Non-GAAP-based net income, attributable to OpenText

26,610

53,998

(8)

80,608

GAAP-based earnings per share / Non GAAP-based earnings per share-diluted, attributable to OpenText

$

0.22

$

0.44

(8)

$

0.66

(1)

Adjustment relates to the exclusion of share based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.

(2)

Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.

(3)

GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of revenue.

(4)

Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges are generally incurred in the periods following the relevant acquisitions and are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results.

(5)

GAAP-based and Non-GAAP-based income from operations stated in dollars, and operating margin stated as a percentage of revenue.

(6)

Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results.

(7)

Adjustment relates to differences between the GAAP-based tax recovery rate of approximately 1% and a non-GAAP-based tax rate of 18%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating non-GAAP-based adjusted net income. Such excluded expenses include amortization, share-based compensation, special charges and other income (expense), net. Also excluded are tax expense items unrelated to current period income such as movements in FIN48 and valuation allowance reserves, tax arising on internal reorganizations, and "book to return" adjustments for tax return filings and tax assessments (in total "adjusted expenses"). In arriving at our non-GAAP-based tax rate of 18%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.

(8)

Reconciliation of Non-GAAP-based adjusted net income to GAAP-based net income:

 

Three Months Ended March 31, 2015

Per share diluted

Non-GAAP-based net income, attributable to OpenText

$

80,608

$

0.66

Less:

Amortization

50,386

0.41

Share-based compensation

6,562

0.05

Special charges (recoveries)

5,622

0.05

Other (income) expense, net

9,550

0.08

GAAP-based provision for (recovery of) income taxes

(309)

Non-GAAP based provision for income taxes

(17,813)

(0.15)

GAAP-based net income, attributable to OpenText

$

26,610

$

0.22

 

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the nine months ended March 31, 2015.

(In thousands except for per share amounts)

Nine Months Ended March 31, 2015

GAAP-based

Measures

GAAP-based Measures

% of Revenue

Adjustments

Note

Non-GAAP-based

Measures

Non-GAAP-based Measures

% of Revenue

Cost of revenues

Cloud services

$

174,959

$

(581)

(1)

$

174,378

Customer support

71,252

(632)

(1)

70,620

Professional service and other

136,332

(914)

(1)

135,418

Amortization of acquired technology-based intangible assets

58,548

(58,548)

(2)

GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%)

918,604

67.1

%

60,675

(3)

979,279

71.5

%

Operating expenses

Research and development

144,134

(1,831)

(1)

142,303

Sales and marketing

265,896

(6,587)

(1)

259,309

General and administrative

121,327

(5,395)

(1)

115,932

Amortization of acquired customer-based intangible assets

79,498

(79,498)

(2)

Special charges (recoveries)

4,032

(4,032)

(4)

GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)

266,201

19.4

%

158,018

(5)

424,219

31.0

%

Other income (expense), net

(28,737)

28,737

(6)

Provision for (recovery of) income taxes

35,401

34,288

(7)

69,689

GAAP-based net income / Non-GAAP-based net income, attributable to OpenText

165,523

152,467

(8)

317,990

GAAP-based earnings per share / Non GAAP-based earnings per share-diluted, attributable to OpenText

$

1.35

$

1.24

(8)

$

2.59

(1)

Adjustment relates to the exclusion of share based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.

(2)

Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.

(3)

GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of revenue.

(4)

Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges are generally incurred in the periods following the relevant acquisitions and are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results.

(5)

GAAP-based and Non-GAAP-based income from operations stated in dollars, and operating margin stated as a percentage of revenue.

(6)

Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results.

(7)

Adjustment relates to the income tax effects of expenses that are excluded for the purpose of calculating non-GAAP-based adjusted net income. Such excluded expenses include amortization, share-based compensation, special charges and other income (expense), net. Also excluded are tax expense items unrelated to current period income such as movements in FIN48 and valuation allowance reserves, tax arising on internal reorganizations, and "book to return" adjustments for tax return filings and tax assessments (in total "adjusted expenses"). In arriving at our non-GAAP-based tax rate of 18%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.

(8)

Reconciliation of Non-GAAP-based adjusted net income to GAAP-based net income:

     

Nine Months Ended March 31, 2015

Per share diluted

Non-GAAP-based net income, attributable to OpenText

$

317,990

$

2.59

Less:

Amortization

138,046

1.12

Share-based compensation

15,940

0.13

Special charges (recoveries)

4,032

0.03

Other (income) expense, net

28,737

0.23

GAAP-based provision for (recovery of) income taxes

35,401

0.29

Non-GAAP based provision for income taxes

(69,689)

(0.56)

GAAP-based net income, attributable to OpenText

$

165,523

$

1.35

 

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the three months ended December 31, 2014.

(In thousands except for per share amounts)

Three Months Ended December 31, 2014

GAAP-based

Measures

GAAP-based Measures

% of Revenue

Adjustments

Note

Non-GAAP-based

Measures

Non-GAAP-based Measures

% of Revenue

Cost of revenues

Cloud services

$

56,974

$

(186)

(1)

$

56,788

Customer support

23,942

(234)

(1)

23,708

Professional service and other

46,641

(335)

(1)

46,306

Amortization of acquired technology-based intangible assets

18,206

(18,206)

(2)

GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%)

318,670

68.1

%

18,961

(3)

337,631

72.2

%

Operating expenses

Research and development

46,170

(614)

(1)

45,556

Sales and marketing

90,010

(2,594)

(1)

87,416

General and administrative

39,849

(966)

(1)

38,883

Amortization of acquired customer-based intangible assets

25,364

(25,364)

(2)

Special charges (recoveries)

(5,759)

5,759

(4)

GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)

110,571

23.6

%

42,740

(5)

153,311

32.8

%

Other income (expense), net

(9,314)

9,314

(6)

Provision for (recovery of) income taxes

18,308

7,559

(7)

25,867

GAAP-based net income / Non-GAAP-based net income, attributable to OpenText

74,287

44,495

(8)

118,782

GAAP-based earnings per share / Non GAAP-based earnings per share-diluted, attributable to OpenText

$

0.60

$

0.37

(8)

$

0.97

(1)

Adjustment relates to the exclusion of share based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.

(2)

Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.

(3)

GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of revenue.

(4)

Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges are generally incurred in the periods following the relevant acquisitions and are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results.

(5)

GAAP-based and Non-GAAP-based income from operations stated in dollars, and operating margin stated as a percentage of revenue.

(6)

Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results.

(7)

Adjustment relates to differences between the GAAP-based tax provision rate of approximately 20% and a non-GAAP-based tax rate of 18%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating non-GAAP-based adjusted net income. Such excluded expenses include amortization, share-based compensation, special charges and other income (expense), net. Also excluded are tax expense items unrelated to current period income such as movements in FIN48 and valuation allowance reserves, tax arising on internal reorganizations, and "book to return" adjustments for tax return filings and tax assessments (in total "adjusted expenses"). In arriving at our non-GAAP-based tax rate of 18%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.

(8)

Reconciliation of Non-GAAP-based adjusted net income to GAAP-based net income:

 

Three Months Ended December 31, 2014

Per share diluted

Non-GAAP-based net income, attributable to OpenText

$

118,782

$

0.97

Less:

Amortization

43,570

0.35

Share-based compensation

4,929

0.04

Special charges (recoveries)

(5,759)

(0.05)

Other (income) expense, net

9,314

0.08

GAAP-based provision for (recovery of) income taxes

18,308

0.15

Non-GAAP based provision for income taxes

(25,867)

(0.20)

GAAP-based net income, attributable to OpenText

$

74,287

$

0.60

 

Reconciliation of selected GAAP-based measures to Non GAAP-based measures for the three months ended March 31, 2014.

(In thousands except for per share amounts)

Three Months Ended March 31, 2014

GAAP-based

Measures

GAAP-based Measures

% of Revenue

Adjustments

Note

Non-GAAP-based

Measures

Non-GAAP-based Measures

% of Revenue

Cost of revenues:

Cloud services

$

49,464

$

(167)

(1)

$

49,297

Customer support

25,206

(138)

(1)

25,068

Professional service and other

49,218

(245)

(1)

48,973

Amortization of acquired technology-based intangible assets

17,147

(17,147)

(2)

GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%)

298,192

67.3

%

17,697

(3)

315,889

71.3

%

Operating expenses

Research and development

47,199

(384)

(1)

46,815

Sales and marketing

93,700

(1,926)

(1)

91,774

General and administrative

39,336

(1,558)

(1)

37,778

Amortization of acquired customer-based intangible assets

24,679

(24,679)

(2)

Special charges (recoveries)

15,902

(15,902)

(4)

GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)

66,849

15.1

%

62,146

(5)

128,995

29.1

%

Other income (expense), net

1,652

(1,652)

(6)

Provision for (recovery of) income taxes

12,971

3,814

(7)

16,785

GAAP-based net income / Non-GAAP-based net income, attributable to OpenText

45,884

56,680

(8)

102,564

GAAP-based earnings per share / Non GAAP-based earnings per share-diluted, attributable to OpenText

$

0.38

$

0.46

(8)

$

0.84

(1)

Adjustment relates to the exclusion of share based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.

(2)

Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.

(3)

GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of revenue.

(4)

Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges are generally incurred in the periods following the relevant acquisitions and are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results.

(5)

GAAP-based and Non-GAAP-based income from operations stated in dollars, and operating margin stated as a percentage of revenue.

(6)

Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results.

(7)

Adjustment relates to differences between the GAAP-based tax provision rate of approximately 22% and a non-GAAP-based tax rate of 14%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating non-GAAP-based adjusted net income. Such excluded expenses include amortization, share-based compensation, special charges and other income (expense), net. Also excluded are tax expense items unrelated to current period income such as movements in FIN48 and valuation allowance reserves, tax arising on internal reorganizations, and "book to return" adjustments for tax return filings and tax assessments (in total "adjusted expenses"). In arriving at our non-GAAP-based tax rate of 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.

(8)

Reconciliation of Non-GAAP-based adjusted net income to GAAP-based net income:

 

Three Months Ended March 31, 2014

Per share diluted

Non-GAAP-based net income, attributable to OpenText

$

102,564

$

0.84

Less:

Amortization

41,826

0.34

Share-based compensation

4,418

0.04

Special charges (recoveries)

15,902

0.13

Other (income) expense, net

(1,652)

(0.01)

GAAP-based provision for (recovery of) income taxes

12,971

0.11

Non-GAAP based provision for income taxes

(16,785)

(0.15)

GAAP-based net income, attributable to OpenText

$

45,884

$

0.38

 

Reconciliation of selected GAAP-based measures to Non GAAP-based measures for the nine months ended March 31, 2014.

(In thousands except for per share amounts)

Nine Months Ended March 31, 2014

GAAP-based

Measures

GAAP-based Measures

% of Revenue

Adjustments

Note

Non-GAAP-based

Measures

Non-GAAP-based Measures

% of Revenue

Cost of revenues:

Cloud services

$

79,692

$

(145)

(1)

$

79,547

Customer support

71,785

(547)

(1)

71,238

Professional service and other

145,898

(743)

(1)

145,155

Amortization of acquired technology-based intangible assets

51,712

(51,712)

(2)

GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%)

771,767

68.3

%

53,147

(3)

824,914

73.0

%

Operating expenses

Research and development

129,332

(1,906)

(1)

127,426

Sales and marketing

244,403

(6,200)

(1)

238,203

General and administrative

101,037

(6,166)

(1)

94,871

Amortization of acquired customer-based intangible assets

54,388

(54,388)

(2)

Special charges (recoveries)

25,901

(25,901)

(4)

GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)

192,823

17.1

%

147,708

(5)

340,531

30.1

%

Other income (expense), net

2,838

(2,838)

(6)

Provision for (recovery of) income taxes

48,576

(3,216)

(7)

45,360

GAAP-based net income / Non-GAAP-based net income, attributable to OpenText

130,014

148,086

(8)

278,100

GAAP-based earnings per share / Non GAAP-based earnings per share-diluted, attributable to OpenText

$

1.08

$

1.24

(8)

$

2.32

(1)

Adjustment relates to the exclusion of share based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.

(2)

Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.

(3)

GAAP-based and Non-GAAP-based gross profit stated in dollars, and gross margin stated as a percentage of revenue.

(4)

Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges are generally incurred in the periods following the relevant acquisitions and are not indicative or related to continuing operations and are therefore excluded from our internal analysis of operating results.

(5)

GAAP-based and Non-GAAP-based income from operations stated in dollars, and operating margin stated as a percentage of revenue.

(6)

Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) relates primarily to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results.

(7)

Adjustment relates to differences between the GAAP-based tax provision rate of approximately 27% and a non-GAAP-based tax rate of 14%; these rate differences are due to the income tax effects of expenses that are excluded for the purpose of calculating non-GAAP-based adjusted net income. Such excluded expenses include amortization, share-based compensation, special charges and other income (expense), net. Also excluded are tax expense items unrelated to current period income such as movements in FIN48 and valuation allowance reserves, tax arising on internal reorganizations, and "book to return" adjustments for tax return filings and tax assessments (in total "adjusted expenses"). In arriving at our non-GAAP-based tax rate of 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.

(8)

Reconciliation of Non-GAAP-based adjusted net income to GAAP-based net income:

 

Nine Months Ended March 31, 2014

Per share diluted

Non-GAAP-based net income, attributable to OpenText

$

278,100

$

2.32

Less:

Amortization

106,100

0.88

Share-based compensation

15,707

0.13

Special charges (recoveries)

25,901

0.22

Other (income) expense, net

(2,838)

(0.02)

GAAP-based provision for (recovery of) income taxes

48,576

0.40

Non-GAAP based provision for income taxes

(45,360)

(0.37)

GAAP-based net income, attributable to OpenText

$

130,014

$

1.08

 

(3)

The following tables provide a composition of our major currencies for revenue and expenses, expressed as a percentage, for the three and nine months ended March 31, 2015 and 2014:

Three Months Ended March 31, 2015

Three Months Ended March 31, 2014

Currencies

% of Revenue

% of Expenses*

% of Revenue

% of Expenses*

EURO

23

%

14

%

27

%

17

%

GBP

8

%

8

%

9

%

10

%

CAD

5

%

12

%

4

%

14

%

USD

52

%

49

%

48

%

42

%

Other

12

%

17

%

12

%

17

%

Total

100

%

100

%

100

%

100

%

 

Nine Months Ended March 31, 2015

Nine Months Ended March 31, 2014

Currencies

% of Revenue

% of Expenses*

% of Revenue

% of Expenses*

EURO

24

%

15

%

28

%

18

%

GBP

9

%

8

%

8

%

9

%

CAD

5

%

12

%

5

%

16

%

USD

50

%

47

%

48

%

41

%

Other

12

%

18

%

11

%

16

%

Total

100

%

100

%

100

%

100

%

*Expenses include all cost of revenues and operating expenses included within the Condensed Consolidated Statements of Income, except for amortization of intangible assets, share-based compensation and special charges

(4) Currency impact on selected GAAP-based and non-GAAP-based measures for the nine months ended March 31, 2015*

The following tables illustrate the impact of foreign exchange rates (FX) on selected GAAP-based and non-GAAP-based measures for the respective periods:

YTD Highlights - Constant Currency basis

Q3 FY15 YTD re-presented on a constant currency basis

Q3 FY14 YTD

$ Change

% Change

FX impact - higher (lower)

Revenues: (in millions)

Cloud services

453.4

212.2

$

241.2

113.7

%

(8.4)

Customer support

565.9

523.2

42.7

8.2

%

(18.2)

Professional service and other

184.4

185.8

(1.4)

(0.8)

%

(6.4)

Total Recurring revenues

$

1,203.8

$

921.2

$

282.5

30.7

%

$

(33.0)

License

207.5

209.5

(2.0)

(1.0)

%

($9.1)

Total revenues

$

1,411.3

$

1,130.7

$

280.5

24.8

%

$

(42.1)

Non-GAAP-based operating margin (2)

31.0

%

30.1

%

n/a

90

bps

Non-GAAP-based EPS, diluted (2)

$2.68

$2.32

$

0.36

15.5

%

$

(0.09)

 

* Individual line items may be adjusted by non-material amounts to enable totals to align to published financial statements.

 

SOURCE Open Text Corporation



RELATED LINKS

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